De Tocqueville in America
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| ISBN 10: 1857151798 |
Among the novel objects that attracted my attention during my stay in the United States, nothing struck me more forcibly than the general equality of condition among the people. I readily discovered the prodigious influence that this primary fact exerci3ese on the whole course of society; it gives particular direction to public opinion and a peculiar tenor to the laws; it imparts new maxims to the governing authorities and peculiar habits to the governed.
I soon perceived that the influence of this fact extends far beyond the political character of the laws of the country, and that it has no less effect on civil society than on the government; it creates opinions, gives birth to new sentiments, founds novel customs, and modifies whatever it does not produce. (Volume I, Introduction, 3).
Yet, as Alan Ryan argues, “equality of condition” for de Toccqueville was not conceptualized in terms of wealth, occupation, income, or similarities in the day-to-day existence of the people. Instead, de Tocqueville’s equality was conceived in terms of status; a total absence of unearned or inherited deference, an unwillingness on the part of Americans to acknowledge onself as any man’s social inferior, and an absence of the old aristocratic urge to break into the landed or territorial ruling class.
De Tocqueville writes,
Among democratic nations new families are constantly springing up, others constantly falling away, and all that remain change their condition; the woof of time is ever instant broken and the track of generations effaced. Those who went before are soon forgotten; of those who will come after, no one has any idea… as each class gradually approaches others and mingles with them, its members become undifferentiated and lose their class identity for each other. Aristocracy has made a chain of all the members of the community, from the peasant to the king; democracy breaks that chain and severs every link of it. (Volume II, Chapter II, 99)
Finally, de Tocqueville writes of a peculiar mix of industriousness, individualism, and engagement in public affairs.
Perhaps there is no country in the world where fewer idle men are to be met with than in America, or where all who work are more eager to promote their own welfare… An American attends to his private concerns as if he were alone in the world, and the next minute he gives himself up to the common welfare as if he had forgotten them. At one time he seems animated by the most selfish cupidity; at another, by the most lively patriotism… And indeed, the Americans believe their freedom to be the best instrument and surest safeguard of their welfare; they are attached to one by the other.(Volume II, Chapter XIV, 142)These ideas have been subject to much debate since they were hatched. Some have argued that de Tocqueville’s impressions were about a privileged class of white Americans, conveniently ignoring the scourge of slavery. Others have argued that ideas of individualism, patriotism, and industriousness were eventually conflated into the justification for Manifest Destiny and American Exceptionalism that many point to as having been behind the destructive expansion of the American West, the decimation of Native Americans, and the kind of foreign policy adventurism that led to the 2003 invasion of Iraq.
But most often, debate about the American Dream has swirled around the erosion of prospects for improving one's standard of living at home.
Elusiveness and Power of “The Dream”
The concept of the American Dream, and its attainability, is one of the most powerful bits of mythology in American culture, even as evidence piles up that the Dream is more and more elusive.
According to government statistics, the national unemployment rate currently sits at 5.5%; pretty good compared to a lot of other countries. Indeed, for economists, unemployment around 5% used to be considered "full employment," meaning the supply and demand for jobs is roughly equal. More importantly, since peaking at 9.9% in February 2010, the U.S. unemployment picture has improved in virtually every month since.
Yet angst hangs over the American economy and the presidential election campaign like a wet blanket. Wages are stagnant. Labour force participation rate is at its lowest point since the late 1970s; just over 70% of the potential U.S. workforce is actually working. Those who are finding jobs are also frustrated by the absence of quality jobs, or jobs with full-time hours. And then there's the debt, social security insolvency, and soaring healthcare costs to worry about. Indeed, it’s not hard to find a survey in which a majority of Americans think the country is headed in the wrong direction.
Income inequality has always been a hot political topic, but it’s been a white-hot topic since the onset of the 2008 Financial Crisis. While economies were pulled back from the brink, and the recession that followed officially ended in 2010, it doesn’t feel that way for many people. Indeed, the sorted tale of financial malfeasance has spawned two political revolts in the United States (the Occupy Wall Street Movement and the TEA Party), a massive legislative effort to correct it (so-called Dodd-Frank Legislation), a popular culture sceptical of finance, and a number of Hollywood films taking direct aim at Wall Street (Inside Job, The Big Short, and Too Big to Fail, among others).
In 2013, Thomas Piketty, a French economist, threw gasoline on the inequality fire when he published “Capital,” detailing long-term trends in the distribution of income and wealth. His conclusions suggested that most redistributional efforts by governments had not altered longer-term trends in which private wealth dwarfed overall national income and was held in the hands of fewer and fewer rich families—not quite what de Tocqueville observed in the 19th Century.
The evidence of growing inequality has become particularly important politically with respect to the American middle-class. Indeed, in 2009 the Obama Administration launched a Middle Class Task Force, chaired by Vice-President Biden. The goals of the Task Force were explicit:
- Expand education and lifelong training opportunities
- Improve work and family balance
- Restoring labor standards including workplace safety
- Helping to protect middle-class and working-family incomes
- Protecting retirement security
Moreover, as students of economics know well, the main source of increasing standards of living is productivity increases; the rate of output per hour of work. As depicted in Figure 1 from the Task Force Report, American productivity and income gains have diverged significantly. In addition, where income gains have been realized, most have gone to the upper 1% of families (Figure 3 below).
The anecdotal evidence in support of a struggling middle class abounds. However, earlier this month, the Pew Center released a new set of empirical findings to back that up. Conclusion: the middle class is shrinking. Some of moving out of it and entering the ranks of higher-income brackets, but others are falling out. Indeed, in most U.S. metropolitan areas the middle class is shrinking while the share of income held by both upper and lower income classes is growing.
There is a significant body of research on the link between consumption in the American economy and the wealth tied up in home ownership. A 2011 Federal Reserve study estimated the total wealth of U.S. households at the end of 2008 was $25.4 trillion. Housing wealth is about one half of total household net worth ($52.9 trillion), and is larger than Gross Domestic Product ($14.4 trillion). Housing wealth has historically tracked along with consumption,… Then, in 2007, the housing market began to collapse and along with it consumption.
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| Source: MatteoIacoviello, Board of Governors of the Federal Reserve System, InternationalFinance Discussion Papers, Number 1027, April 2011. |
Finally, yet another source of social mobility for middle-class Americans has been higher education. Yet, as the White House Task Force on the Middle Class first reported in 2010, access to higher education is becoming more difficult. https://www.whitehouse.gov/strongmiddleclass
Since 1979-80, the inflation-adjusted value of the average published college tuition has shot up from $2,174 to $7,020 for public four-year colleges and fom $9,501 to $26,273 for private four-year colleges. Family incomes, by contrast, have stagnated… from 1979 to 2008, the real median income of American families with children grew just 7.6 percent from $55, 830 to $60,055.
Tolerance for Inequality?
Relative to their counterparts in other high-income, OECD, countries, Americans have had an unusual tolerance for a national income distribution that skews much of it toward the top. One important indicator of that skewed distribution is the GINI Index, wherein 1 represents a perfectly equal distribution of income across the entire population and 100 suggests national income is concentrated in a single hand. Hence, we might expect advanced welfare states with progressive, redistributive tax systems to have a relatively equitable income distribution. Indeed, most such countries—Norway, Canada, Australia, the UK, Germany-- have GINI indexes in the low 30s. In 2010, the U.S. GINI index was 40.46, on par with Morocco (click GINI index in drop-down menu).
There’s a lot of academic literature about the merits social outcomes of different tax systems (flat vs. progressive, for instance) as well as considerable debate in the development literature about the relative ineffectiveness of the state in actually collecting taxes (evasion). The U.S. Internal Revenue Service certainly has its flaws, but part of America’s inequality problem is also cultural.
No Socialism in America?
The elusiveness of the American Dream has been regular fodder for political debate for a very long time. The Gilded Age, the Great Depression, and the “stagflation” of the 1970s were all periods of malaise that brought political revolts of one kind or another. Yet, throughout them all, the United States has remained stubbornly resistant to a strong and stable socialist movement. Why? If we were to follow Marx and Engels, we should we not have witnessed America transformed from the most capitalist of countries into the most socialist.
Was de Tocqueville right? Is America a cultural oddity of sorts? Does America really have a strange absence of class-consciousness (equality of status) that makes parts of the population resistant to social and political revolution?—Bernie Sanders is trying to change that. Perhaps the idea of the “frontier” and Manifest Destiny in an expansionist America made achieving the Dream easier? Those days are over. Yet the power of the American Dream seems to live on.
Scholars have puzzled over these issues and put forward a number of hypotheses as to why. Perhaps James Madison’s goal of thwarting the concentration of power in the design of American political institutions had effectively baked-in continuous, but not revolutionary, change by thwarting the rise of “faction.” Perhaps the idea of popular sovereignty in America life (derived from the Declaration of Independence) had entrenched itself far more firmly than in Europe? After all, Americans have elections for everything, and nearly all the time.
Perhaps it has something to do with former House Speaker Tip O’Neil’s old adage that “all politics is local”? Perhaps part of the uniqueness of American life is its hyper-local quality (some might say overly inward-looking and parochial); the politics of community rather than shop floor? On the other hand, perhaps the individualism noted by de Tocqueville creates a kind of rootlessness in pursuit of the material that thwarts class-consciousness? It’s hard to organize politically when you are not standing still or locked in place for easy exploitation.
What about the relative openness of America’s political parties (factions James Madison didn’t envision) to participation by the masses? Any working-class consciousness that does exist is simply co-opted by the two main parties? This takes revolutionary politics off the table and eliminates the need to overcome institutional barriers to forming a new national political party. Have Democrats and Republicans simply stolen most of the best ideas?
What about economic crisis? The Great Depression was catastrophic. At the height of the 2008-2010 Financial Crisis, unemployment briefly peaked at around 10%. For much of the 1930s, U.S. unemployment was well-over 15%, peaking at 25% in 1933. Such an economic calamity might have laid the foundation for a political sea change. However, as the historian Eric Foner notes, poverty and inequality can have quite different effects. They can be a powerful spur to radicalism or a barrier. Social mobility might increase class awareness, but it might also undercut it. Ethnic cohesiveness, or the lack thereof in the U.S. case, might be seen as an impediment to class solidarity, or act as the springboard from which it emerges. Radicalism is hardly absent from American political life. Indeed, while most think of the United States as a stable two party system, there have been many different threads, many of them long-lived.
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| Source: http://historyshots.com/collections/political-financial |
The big question going forward is what role the welfare state can continue to play in helping to preserve the myth of the American Dream.
The Compromise of Embedded Liberalism
An important way in which to think about the postwar international economic order is to begin thinking in terms of the political tensions between openness and protection in economic policy. Many scholars write about the "embedded liberalism" that has been the default mode of the postwar global economic regime; in short, there has been a political and institutional preference for open, liberalized trade between nations. It is thought that this default preference for openness internationally has had numerous salutary effects on economic growth, development, and global peace. The evidence in support of economic openness in policy-making is hard to ignore. The Millions of people around the world have been lifted out of poverty because of the benefits of trade liberalization. Moreover, the salutary effects of economic interdependence have short-circuited the propensity for widespread global conflict since 1945.
That said, capitalizing on the benefits from trade liberalization entails policy decisions well beyond the bounds of trade alone. Indeed, the distributional consequences of trade liberalization are politically challenging and have necessitated an implicit bargain between the beneficiaries of those policies and those whom economic theory suggested would be negatively affected. Students of trade theory know that distributional consequences of liberalization generate broadly-based "winners" and narrowly concentrated "losers." The implicit postwar "compromise" was that the broadly based benefits of liberalization at home and abroad would be purchased politically through government policies aimed at shielding the "losers" from their harshest effects; the welfare state.
In the context of a globalized economy, some would acknowledge that the implicit bargain needs some updating and maintenance. Many Trump and Sanders supporters believe it is an implicit bargain that has been irreparably broken.
It is a tension that has been an inherent part of U.S. trade policy in the postwar period, and something I've written about a fair bit on this blog (See June 2015 Post). There have always been political fights over whether the "compromise" was robust enough, whether government support of the social safety net, or job retraining programs for workers "released" from inefficient sectors was robust enough, or whether the state could even adopt such policies in a globalized economy. It is a challenge for governments compounded by the fact that liberalization now reaches into many areas of governance, in many cases restricting the policy latitude governments have to preserve the "compromise" and the social stability that comes with it.
It’s possible that the United States is, once again, different. However, there is a growing body of scholarship on the connection between income inequality and the stability of democracy itself (see Terry Lynn Karl’s piece on this in the Journal of Democracy). Interestingly, de Tocqueville actually worried about how an aristocratic class could be an unwanted by-product of manufacturing capacity being held in just a small number of hands.
Thus, in proportion as the mass of the nation turns to democracy, that particular class which is engaged in manufacturers becomes more aristocratic. Men grow more alike in the one, more different in the other; and inequality increases in the less numerous class in the same ratio in which it decreases in the community. Hence, it would appear, on searching to the bottom, that aristocracy should naturally spring out of the bosom of democracy. (Volume II, Chapter XX, 158-161)
Preserving the capacity of individuals to pursue absolute material gains may be a big—and understudied-- part of how the compromise of embedded liberalism has functioned in the postwar period and possibly preserved going forward. Could it be the case that so long as your absolute standard of living is rising, it’s not important to you that Warren Buffet or Bill Gates have far greater material wealth?
In fact, research suggests relative gains matter a lot.
The Pursuit of Status Goods
In 1993, psychologists Tim Kasser and Richard Ryan argued (article linked here) that the mere pursuit of material gain is actually associated with greater distress and less self-actualization than commonly thought. Kasser and Ryan aimed to test whether “financial success” as a life goal was negatively associated with psychological adjustment when it predominates other life-goals. They surveyed over 100 freshmen psychology students on a range of life-aspiration measures-- financial success, self-acceptance, affiliation, and community feeling—to assess their overall well-being. They conclude that “whereas the relative centrality of aspirations for ‘self-acceptance,’ ‘affiliation’ and ‘community feeling’ were associated with greater well-being and less distress, this pattern was reversed for ‘financial success’ aspirations.”
The stresses associated with the pursuit of financial success are things to which many of us can relate. Yet, it is also a set of stresses that some are suggesting is beginning to take a toll on parts of America that are falling further behind in a competitive global economy.
Compounding all of this is psychological research on the importance of “status;” more specifically, the importance of social position for a whole range of issues, including basic health. Michael Marmot argues that the social position precedes the development of ill-health. Why, he argues, do Oscar award winning actors live 4yrs longer than actors that never win an Oscar? Why do those with “…PhDs have a longer life-expectancy than those with a Master’s degrees or other professional qualification, who in turn have a longer life expectancy than those with a Bachelor’s degree and so on…”? It’s all about your status in the hierarchy.
Marmot further argues that your status is related to two fundamental human needs: to have control over your own life and to be a full participant with all that implies about being a recognized member of society… Poor health is directly related to stress arising from the inability to control our lives, to turn to others when we lose control or to participate fully in all that society has to offer.
This is extremely important for interpreting what is happening in America in 2016. The anger and populism, the belief that American institutions have failed segments of the populations, and that the economy is no longer working for the average American, are all about the absence of control. Again, as Marmot notes, hierarchies are everywhere. In hunter-gatherer societies, the gap in material resources between the highest rank and bottom rank person are small. In America, the gap between Bill Gates and the poorest American is enormous. Where you are in the hierarchy has a huge impact on longevity.
It is my argument here that as long as the perception that mobility through the social hierarchy is within one’s control, the breadth of those hierarchies may not matter so much. This is, in part, the power of the American Dream. A little hard work in the midst of a country essentially driven by a meritocracy will allow nearly anyone to feel economically successful as they rise through the hierarchy. What we are seeing in the 2016 Presidential Election campaign is, in part, a revolt fostered by the erosion in that basic set of beliefs among more and more people.
Political campaigns are ugly at the best of times. They bring out some of the basest impulses in our politicians, and in those who support them. The political economist in me sees something a little bigger going on than the typical populism associated with campaigns. America has never been more open to the world, and never have so many Americans had the pressures of a competitive global economy bearing down on them. In my view, this poisonous stew of the social, economic and political is making 2016 a lot uglier than normal.
Consequences
This is a complex stew we’ve only just begun to wrap our minds around. The political and economic cleavages that are fueling the insurgent candidacies of Trump and Sanders have roots inside and outside the United States. The United States is still a relatively closed economy—only about 30% of GDP is dependent on trade. However, as that figure had grown, in part because of the pursuit of trade liberalization, more and more Americans have been exposed the competitive pressures of foreign manufacturing. Foreign low-skill labour or automation are putting tremendous pressure on the value-added skill sets of Americans in a number of occupations that for much of the postwar period provided a middle-class standard of living.
That’s no longer as easy as it once was. For those who are immobile, or unable to move up the value-chain of skills development, those pressures are going to continue to get worse. The losers from trade liberalization (and technological change) are going find the economic headwinds they face get tougher. The state hasn’t done a good job “compensating” the losers from this process, and it’s being reflected in the frustration we see in the 2016 campaign.
Donald Trump and Bernie Sanders offer a dangerous brand of economic populism that will utilize the state to stimulate job growth in sectors that are no longer competitive in a globalized economy. It sounds nice on the political stump to promise that we’re going to Make America Great Again, but the cost at home and abroad worries me deeply. Promising to bring jobs back, punish firms that outsource, or protect certain sectors amounts to a self-defeating economic nationalism that is in no one’s interest. I’m deeply worried about the consequences of all of this at home and for the global economy. The state is an important part of the equation, but I'm anxious about the propensity of the state to engage in the kind of short-term economic nationalism of the interwar years (1918-1936).
Instead of the beggar-thy-neighbour policy making that Trump and Sanders promise, I would like the state intervene in the kind of education, job retraining reforms that will empower people's social mobility. Trump wants Washington to get out of the business of education by dumping Common Core and allowing the states to set education policy. I suppose one could claim that allowing states to compete with one another (incubators of innovation) over educational standards will incentivize mobility away from states with poor schools. That assumes the market for education functions like most other commodities and people are actually mobile enough to move to states with higher standards (not the case). Sanders speaks of education (free tuition), but couples it with protectionism and other varieties of state intervention. Instead of protecting low-skill jobs that can easily be outsourced or are inefficient compared to foreign processes, why not spend resources on retraining the labour force to compete for 21st Century jobs—many of which will be in sectors we haven’t even dreamed up yet? (see to my March 8 post).
In my view, that is the true source of re-building the social mobility that has underwritten the American Dream.
Sadly, no one wants to talk about how to invest in that kind of long-term thinking about education, innovation, or entrepreneurship. Our politics doesn’t permit that kind of long-term thinking. Transforming 1000 Carrier employees into high-tech entrepreneurs doesn’t happen over night. It’s far easier for Trump and Sanders to stand in front of them after they’ve been told their jobs are moving to Mexico and promise them those jobs will return.
I’m deeply sceptical doing so is in their longer-term interests or in the interests of the country.
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